January 22, 2014 7:01 am

Founding president to step down at China wealth fund

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Xi-Qing Gao, Vice Chairman and President, China Investment Corp.at the Milken Institute Global Conference in Beverly Hills

The long-serving Gao Xiqing, who almost starved to death in the Cultural Revolution and went on to help found China’s first securities market, is to step down from the helm of the country’s $570bn-plus sovereign wealth fund, according to an internal memo.

Li Keping, chief investment officer, is set to take up the reins at China Investment Corporation as vice-chairman and president once the State Council gives the green light. Mr Gao, the founding president who turned 60 last year, will remain until then, according to one person familiar with the matter.

CIC was created in 2007 with the aim of improving returns on state funds. It has courted much controversy since then, not least after shelling out billions of dollars for stakes in Blackstone and Morgan Stanley of the US in 2007 only to rack up big paper losses in the subsequent months.

At the end of 2012, CIC had $575bn of assets under management, which represented a 10 per cent increase over the previous year in which it lost 4.3 per cent.

Last year, a lengthy recruitment process – which saw several candidates reject the position – resulted in Ding Xuedong becoming chairman and chief executive.

Reluctance to take on the role was due partly to the fear of being made a scapegoat when investments soured and partly to a sense that CIC is less relevant now than in the past, say people familiar with the matter.

“SAFE is all that matters now,” says the head of one private equity firm that invests CIC funds, referring to the State Administration for Foreign Exchange which is responsible for almost all of the country’s reserves.

“In the beginning, there were unrealistic expectations both on CIC’s performance and its ability to do big deals,” says Chen Zhiwu, now a professor at Yale University who is on many advisory boards in China.

“They did not become reality. As a result, money which was originally expected to move to CIC from SAFE has not happened. They will keep CIC going but the expectations have shifted downwards.”

SAFE has recently taken over functions previously handled by CIC, including setting up a debt fund with the asset management unit of the International Finance Corp arm of the World Bank. It is also increasingly investing China’s trillions of dollars in reserves abroad itself.

Lou Jiwei, the previous chairman, became Minister of Finance last spring, leaving Mr Gao to serve as interim chairman. But Mr Gao’s chances of succeeding Mr Lou were widely seen as slight given his relative lack of political support.

Mr Gao began his career as one of a select group of young Chinese sent to the US to be educated in the 1980s. He proceeded to work on Wall Street at former US president Richard Nixon’s former law firm Mudge Rose Guthrie Alexander & Ferdon.

Returning to China in 1988 he helped establish the People’s Republic’s first securities markets, including the equity exchanges in Shanghai and Shenzhen.

A fierce intellectual independence and unwillingness to “play politics”, along with complaints that he is too “western”, are often cited by other senior officials to explain why he never advanced to much higher office.

His decision to join his protesting students in Tiananmen Square in 1989 in a very public show of solidarity was seen by some as a sign of disloyalty to the Party and has hung over his career ever since.

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